This blog was co-authored by James Donald, candidate attorney
The Ministry of Trade, Industry and Competition published the Companies Amendment Bill 2021 for public comment by 31 October 2021. The Bill proposes to amend the definition of “securities” and to exclude subsidiary companies from the financial assistance requirements in section 45 of the Companies Act of 2008.
In terms of the Act, ‘securities’ means any shares, debentures or other instruments, irrespective of their form or title, issued or authorised to be issued by a profit company. The Bill proposes to amend the definition of ‘securities’ to include only shares and debentures, thus removing the catch-all definition including all other financial instruments.
The proposed amendment to section 45 seeks to avoid the rather onerous requirements imposed on a company before it is able to provide valid financial assistance to any of its subsidiaries. Such an easing of intra-group financial assistance requirements will be welcomed.
Section 45(1) of the Act refers to financial assistance as including the lending of money, guaranteeing of a loan or other obligation, and securing any debt or obligation and covers a broad range of financial assistance.
The Act currently dictates that a holding company must first receive approval from its shareholders and board of directors before it is able to lawfully grant financial assistance to a subsidiary. The Act currently outlines that the board itself may not grant such approval unless:
- The financial assistance is pursuant to an employee share scheme, or
- A special resolution adopted within the previous two years and which approved such assistance; and
The board is satisfied that:
- Immediately after providing the financial assistance, the company would satisfy the solvency and liquidity test; and
- The terms of the proposed financial assistance are fair and reasonable to the company.
It is proposed that these requirements will no longer apply to financial assistance by a company to its own subsidiary. This would allow a holding company to give financial assistance to its subsidiaries in more instances than are currently permitted and with less unnecessary formalities. This is likely to make the advancement of financial assistance substantially easier and thus more common. The requirements outlined above will still apply if a subsidiary were to advance financial assistance to its holding company.
While this proposed amendment offers some relief to those looking to provide intra-group assistance, care must still be taken, because the absence of compliance with section 45 can result in a void transaction and personal liability for the directors of a company or members of a close corporation.
Comments must be submitted to email@example.com by no later than Sunday, 31 October 2021.